Derewala Industries Ltd.

Brickwork Ratings upgrades the ratings for the Bank Loan Facilities of Rs. 144.00 Crs. of Derewala Industries Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (07 Jun 2021)	Present
Fund Based	149.00	144.00	Long Term	BWR BBB-/Stable Reaffirmation	BWR BBB /Stable Upgrade
Non Fund Based	(10.00)	(5.00)	Long Term	BWR BBB-/Stable Reaffirmation	BWR BBB /Stable Upgrade
Grand Total	149.00	144.00	(Rupees One Hundred Forty Four Crores Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

Brickwork Ratings (BWR) upgrades the long-term rating to BWR BBB (Stable) for the bank loan facilities of Derewala Industries Ltd (DIL or the company). The rating upgrade is underpinned by DIL’s improving Total operating income and overall profitability margins which in turn are supported by acquisition of new customers and new product mix added by the company in FY22. The upgrade is also driven by an improved credit profile of DIL marked by strong cash accruals and healthy debt protection metrics. The rating also factors exclusive experience of the promoters in the jewellery business, comfortable debt protection metrics and comfortable gearing ratio, ability to manage price volatility, favorable receivable level and competitive edge from integrated production setup. The rating is, however, constrained by working capital intensive operations due to high level of inventory, exposure to raw material price volatility, competition from various players and inherent risk associated with the nature of business.

The outlook is Stable as the company has been able to improve its overall revenue and overall profitability in 9MFY22 although declined due to Covid 19 impact. The ability of the company to improve its profitability margins over the years and healthy order book providing the revenue visibility for short to medium term.

KEY RATING DRIVERS

Credit Strengths:

Exclusive experience of the Promoters :
The Derewala Group, promoted by Mr. Pramod Agrawal, started its business in 1986 through a proprietorship firm called Derewala Jewellery Manufacturing Company. He is the Chairman of Indian Institute of Gems and Jewellery, Jaipur (a project of GJEPC). He is also a Chairman of Gems and Jewellery Export Promotion Council (GJEPC) at all India level, Board of Director of All India Gems and Jewellery Trade Federation (GJF) and Executive Member of Jewellers Association, Jaipur. Also, Mr. Pramod Agrawal has a total experience of more than 30 years. Mr. Yoginder Garg, Director of company, looking after sales and marketing distribution networks across India offering new and exciting jewelry at incredible prices having experience of 26 years.
Comfortable Debt protection metrics :
The entity has comfortable debt protection metrics as ISCR and DSCR stood at 1.66x and 1.70x respectively in FY21 which reflects the ability of the company for timely repayment of debt. ISCR of company further improves to 2.93x and DSCR improves to 2.08x in 9MFY22 (Provisional).
Diversified Product portfolio :
DIL’s silver jewellery portfolio includes rings, pendants, bracelets and beaded jewellery, among others. The gold jewellery includes chains, mesh, stamped and gold flick products that are supplied to wholesalers as well as reputed retailers in India. The company has started manufacturing of three new products which are slider necklace/ bracelet, interchangeable (Charms) jewellery and Bonded jewellery with less noble metal. DIL have registered two jewellery Brands Milaan (Gold Bonded with Silver) & Metal Orafa (22Kt Gold Bonded with Brass) which is exactly like gold jewellery at an affordable price, mainly to cater lower & middle class people who cannot afford to buy expensive gold jewellery in the current scenario. Company has started making Jewellery from Recycled gold & silver and supplying to key customers like Pandora Production etc as per their demand to support Nature sustainability which has added a business worth Rs. 65.52 Crs in FY 22. As the company has got membership of Fairmined & Fair Trade organizations (i.e. Highly business ethical practice certification) and the company are getting orders from – Maria Black, Rachel Jackson etc. Company has also build relation with one more brand - Mejuri Inc of Toronto and expecting confirmed order book in Apr 2022.
Improving Financial Risk Profile :
As the company is focusing on high margin orders and improving its export sales, the company is able to improve its PAT from Rs. 2.85 Crs in FY20 to Rs. 5.45 Crs in FY 21. Also, the cash profits of the company have improved from Rs. 7.03 Crs in FY20 to Rs. 9.36 Crs in FY 21. The company had achieved a turnover of Rs. 390.03 Crs in FY22 and has orders in hand of Rs. 60 Crs providing the revenue visibility for short to medium term. The gearing ratio (i.e TOL:TNW) of the company was recorded at a comfortable level of 1.92x in FY21 improved from 2.00x in FY20 which further improves to 1.62x in 9MFY22 (Provisional). Total debt of the company has declined from Rs. 158.32 Crs in FY 21 to Rs. 142.05 Crs in 9MFY22 as the company has reduced its limits. The company reported ROCE of 5.60% in FY 20 which has improved to 9.12% in FY21 and further improved to 9.50% in 9MFY22.

Credit Risks:

Highly fragmented nature of Industry :
The gems and jewellery industry is highly fragmented and unorganized. The larger domestic players and export oriented units are entering the organized domestic retail segment at the cost of the unorganized segment. Over the last couple of years, the share of organized players has been expanding, with major growth being observed in metropolitan areas.
Inherent risk associated with business :
There are inherent risks associated with the jewellery industry like governmental regulations such as hallmarking, imposition of custom duty and demonetization in FY17, the Goods and Services Tax in FY18 and highly impacted by the covid -19 pandemic happened globally. Also, the major risk associated with business is the ever changing taste and preference of customers relating to the designs of jewellery.
High working capital requirements :
The Company has highly working-capital-intensive operations and maintains large inventory which may impact the profitability in case of price volatility. The inventory holding period ranges between 190 to 200 days in FY 20 which has increased to 318 days in FY21 due to covid - 19 pandemic. However, the company has been able to maintain a receivable of 27 days in FY21 which is adequate for the jewellery industry.
Competition in the Industry :
Entry barriers in the industry are low on account of limited capital and technology requirement and also low differentiation in the end product leading to intense competition and limiting the pricing power resulting in low profitability.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has applied its rating methodology as debited in the Rating Criteria detailed below ( hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Upward : The outlook may be revised to positive or the rating may be upgraded if the company improves its scale of operations and liquidity profile of the company, besides financial risk profile improves from the current level.
Downward : BWR may revise the ratings downwards if the company achieves notably lower than expected projections and deterioration in debt protection metrics and liquidity.

LIQUIDITY INDICATORS - Adequate

Company has a fund based working capital facility of Rs. 113 crs and its average utilisation of the fund-based limits is 61.37% over the last three months ended Feb 2022. Company has cash accruals (Profit after tax + depreciation) of Rs 9.36 Cr in FY21 which has improved from Rs. 7.03 Crs in FY20 whereas long term debt to be paid in FY 22 of Rs. 3.33 Crs. The company has generated cash from operations of Rs. 13.24 Crs in FY 21. Also, the company has cash accruals of Rs. 15.24 Crs in 9MFY22 (Provisional ) with Current portion of long term borrowings of Rs. 1.35 Crs as on Dec 31, 2021 to be repaid in next three months of FY 22. The company has to repay Rs. 0.57 Crs of long term debt in FY 23. Company has free cash and cash equivalents of Rs. 1.48 Crs as on 31.12.2021. The current ratio of 1.33x in FY 21 indicates adequate liquidity position.

ABOUT THE ENTITY

Derewala Group has been promoted by Mr. Pramod Agrawal who started the jewellery business in 1986 as a proprietorship concern. In 2003, this was converted into a partnership concern in the name of Derewala Jewellery Industries. They converted the partnership concern to a company renamed as Derewala Industries Ltd. in 2014 having its worldwide distribution from its base in Jaipur, the jewellery hub of India. Derewala creates jewellery that is both exquisite and exclusive, employs passionate designers, brilliant engineers, master craftsmen, and uses state of the art technology. Derewala’s expertise caters to retailers, manufacturers and wholesalers worldwide. Its silver jewellery portfolio includes rings, pendants, bracelets and beaded jewellery, among others. These are supplied to wholesalers and direct marketing companies in the US, the UK, Sweden, Germany and France. The gold jewellery includes chains, mesh, stamped and gold flick products that are supplied to wholesalers as well as reputed retailers in India.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	243.92	360.02
EBITDA	Rs.Crs.	22.23	19.52
PAT	Rs.Crs.	5.45	2.85
Tangible Net Worth	Rs.Crs.	96.22	90.65
Total Debt/Tangible Net Worth	Times	1.65	1.74
Current Ratio	Times	1.33	1.27

KEY COVENANTS OF THE FACILITY RATED

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2022)			2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	144.00	BWR BBB/Stable (Upgrade)	07Jun2021	BWR BBB-Stable (Reaffirmation)	25Feb2020	BWR BBB- Stable (Assignment)	NA	NA
		0.00	NA	NA	NA	06Mar2020	BWR BBB-Stable (Reaffirmation)	NA	NA
Non Fund Based	LT	0.00	NA	07Jun2021	BWR BBB- Stable (Assignment)	NA	NA	NA	NA
NFB SubLimit	LT	(5.00)	BWR BBB/Stable (Upgrade)	NA	NA	NA	NA	NA	NA
Grand Total		144.00	(Rupees One Hundred Forty Four Crores Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Neha Wahi Ratings Analyst Board : +91 11 2341 2232 nehawahi@brickworkratings.com	Tanu Sharma Director - Ratings tanusharma@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Derewala Industries Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Kotak Mahindra Bank	Export Packing Credit (EPC) - Sanctioned	25.00	_	25.00
2	Kotak Mahindra Bank	Post Shipment Finance - Export Bill Discounting (Non-LC) - Sanctioned	9.00	_	9.00
3	State Bank Of India (SBI)	Cash Credit - Sanctioned	110.00	_	110.00
4	State Bank Of India (SBI)		_	_	0.00
	Sub-Limit (Bank Guarantee) - Sanctioned	(5.00)
Total			144.00	0.00	144.00
TOTAL (Rupees One Hundred Forty Four Crores Only)

Print and Digital Media

The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media.

About Brickwork Ratings

Brickwork Ratings (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by Reserve Bank of India [RBI], offers credit ratings of Bank Loan, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. BWR has rated over 11,400 medium and large corporates and financial institutions’ instruments. BWR has also rated NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations. BWR has Canara Bank, a leading public sector bank, as one of the promoters and strategic partner. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations.

Disclaimer

Brickwork Ratings India Pvt. Ltd. (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by the Reserve Bank of India [RBI], offers credit ratings of Bank Loan facilities, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. [ hereafter referred to as "Instruments"]. BWR also rates NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations.

BWR wishes to inform all persons who may come across Rating Rationales and Rating Reports provided by BWR that the ratings assigned by BWR are based on information obtained from the issuer of the instrument and other reliable sources, which in BWR"s best judgment are considered reliable. The Rating Rationale / Rating Report & other rating communications are intended for the jurisdiction of India only. The reports should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in Europe and also the USA).

BWR also wishes to inform that access or use of the said documents does not create a client relationship between the user and BWR.

The ratings assigned by BWR are only an expression of BWR"s opinion on the entity / instrument and should not in any manner be construed as being a recommendation to either, purchase, hold or sell the instrument.

BWR also wishes to abundantly clarify that these ratings are not to be considered as an investment advice in any jurisdiction nor are they to be used as a basis for or as an alternative to independent financial advice and judgment obtained from the user"s financial advisors. BWR shall not be liable to any losses incurred by the users of these Rating Rationales, Rating Reports or its contents. BWR reserves the right to vary, modify, suspend or withdraw the ratings at any time without assigning reasons for the same.

BWR"s ratings reflect BWR"s opinion on the day the ratings are published and are not reflective of factual circumstances that may have arisen on a later date. BWR is not obliged to update its opinion based on any public notification, in any form or format although BWR may disseminate its opinion and analysis when deemed fit.

Neither BWR nor its affiliates, third party providers, as well as the directors, officers, shareholders, employees or agents (collectively, "BWR Party") guarantee the accuracy, completeness or adequacy of the Ratings, and no BWR Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Rating Rationales or Rating Reports. Each BWR Party disclaims all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. In no event shall any BWR Party be liable to any one for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Rating Rationales and/or Rating Reports even if advised of the possibility of such damages. However, BWR or its associates may have other commercial transactions with the company/entity. BWR and its affiliates do not act as a fiduciary.

BWR keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of BWR may have information that is not available to other BWR business units. BWR has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

BWR clarifies that it may have been paid a fee by the issuers or underwriters of the instruments, facilities, securities etc., or from obligors. BWR"s public ratings and analysis are made available on its web site, www.brickworkratings.com. More detailed information may be provided for a fee. BWR"s rating criteria are also generally made available without charge on BWR"s website.

This disclaimer forms an integral part of the Ratings Rationales / Rating Reports or other press releases, advisories, communications issued by BWR and circulation of the ratings without this disclaimer is prohibited.

BWR is bound by the Code of Conduct for Credit Rating Agencies issued by the Securities and Exchange Board of India and is governed by the applicable regulations issued by the Securities and Exchange Board of India as amended from time to time.